This refers to the letter of Ansari Kalim M Suleman, a CA final student, inviting me to elaborate the principal difference between rent and interest that makes the former permitted and the latter a taboo in Islam [Radiance 21-27 February 2010]. Although I have discussed this aspect in my article being published in this issue of this magazine, I am submitting a brief reply of the query.
The difference between money capital and capital goods should be understood so that the Islamic stand can be appreciated. Conventional economists do not differentiate between these two and they recommend interest as remuneration of capital.
Capital goods, like machines, participate in production. Their role in production is known and measurable. Capital goods are used in production but they basically remain intact. The owner of capital goods should get rent for its usufruct, i.e. utilisation for a particular period by any other person.
Money capital helps in purchasing capital goods besides payments for other factors of production. But money as such does not remain intact. Money is converted into tradable goods and services at the end of the production process and the final sale proceeds in money form is settled and realised thereafter. There is no assurance about the quantum of the sale proceeds and the resulting quantum of profit (or, may be, loss). Such change of form (from cash to raw materials/factors or factors to goods/services and to cash) and risk and uncertainty about the ultimate benefit makes money capital a separate entity from human resources (labour), natural resources (land) and man-made resources (capital goods). Thus their respective rewards too differ. Money capital in Islamic perspective gets share of profit and bears share of loss, if any.
Waquar Anwar
New Delhi